Detailed narrative
Middle East disruption weighs on the Marine core
The Marine Technology business — 41.1% of consolidated net revenue and the strategic centerpiece — saw revenue fall 26.8% to $2.8M as the Iran conflict and resulting Middle East/Asia instability softened customer activity. The effective closure of the Strait of Hormuz, through which a significant share of global maritime shipping passes, further disrupted commercial operations.
Hardware sales dropped 46.9% to $1.8M (from $3.3M). Management characterized the demand hit as a timing and security issue rather than structural, citing UAE offshore projects placed on hold for safety reasons that should resume swiftly once pressure eases.
Margin expansion and cost discipline
Despite a 1.6% revenue decline to $6.9M, consolidated gross margin rose to 66.3% from 64.1%, driven by a sharp increase in rental revenue and a reduction in net commission costs. Marine gross margin jumped to 77.0% from 67.7% as rental sales grew 351.1% and commission expense fell 68.7% (about $0.3M) on fewer agent-brokered sales in Asia.
SG&A fell 21.4% to $2.1M (30.9% of revenue vs 38.8%), aided by a ~$0.4M FX swing to a gain, lower stock-based compensation and reduced headcount, lifting operating income 64.8% to $1.8M and operating margin to 26.0% from 15.5%.
DAVD Navy Use approval marks an inflection point
The DAVD uncovered system has been approved as an Approved for Navy Use item — a meaningful inflection point since procurement could not proceed without it. The approval makes the product available for acquisition by any command and enables full-fleet deployment of the 20 systems previously issued.
Management is still awaiting final U.S. Navy DAVD procurement budget approval, now delayed beyond Q2, with corresponding orders anticipated in Q3. There is no IDIQ or BPA in place and none is anticipated; DAVD orders are placed directly with the company.
Adoption also expanded internationally, with a European Navy acquiring an initial number of systems and completing training.
NANO GEN and the underwater vehicle pipeline
Coda introduced the NANO GEN series, an ultra-miniaturized 3D sonar for compact and autonomous platforms, and received an initial order for a small number of NANO GEN sonars for integration into an established vehicle program. The systems provide 3D perception visualization, vehicle control and obstacle avoidance, and will undergo extensive evaluation; management believes the opportunity could scale rapidly if successful and become a recurring production opportunity aligned with the platform's development cycle.
Blair Cunningham noted another 3-4 vehicle-integration opportunities across US and European defense markets at various maturity stages, with 2-3 at fairly advanced stages, split between customer-instigated and technology-manufacturer-driven engagements.
Defense Engineering Services and Acoustics performance
Defense Engineering Services revenue rose 37.9% to $2.5M with gross margin up to 62.0% from 55.5%, driven by increased opportunities and higher revenue in the UK arm; the US arm remains constrained by continuing-resolution funding that delays contract awards and revenue timing.
The business has served the defense market for over 48 years. Acoustics Sensors & Materials revenue grew 17.5% to $1.5M, but gross margin declined to 53.7% from 65.4% reflecting a mix shift toward acoustic-test-environment product sales.
Capital position, M&A strategy and vessel sale
The company ended the quarter with $30.6M in cash and no debt, up $1.9M from $28.7M at October 31, 2025, and total assets of $67.3M (up $2.8M). Management is actively advancing its M&A strategy with two opportunities in due diligence and aims to close a transaction in FY26, targeting a shift of the Marine model toward multiyear, program-based recurring adoption as seen with DAVD.
Other income included a significant gain on the sale of a vessel during the quarter.